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Recession Fears Remain Low Despite Confidence Dip

Consumer confidence declined in January to 104.1 from a revised 109.5 in December. The Consumer Confidence Index softened for the second month in a row but remains in the narrow range of readings collected since 2022.

The Present Situation Index, reflecting current business and labor market conditions, plummeted 9.7 points to 134.3, the largest decline of the broader index. Meanwhile, the Expectations Index, which reflects consumers’ short-term outlook for income, business and labor market conditions, slipped 2.6 points to 83.9, remaining above the recession signal threshold of 80. Consumers’ assessments of current business conditions declined, with 18.4% of consumers saying business conditions were “good.” Views of the current labor market situation sunk for the first time since September, with only 33.0% of consumers saying jobs were “plentiful” and 16.8% saying jobs were “hard to get.” Consumers expressed pessimism about future labor market conditions. In addition, consumers felt less positive about future business conditions and, to a lesser extent, future income prospects. On the other hand, consumers’ views of their current financial situation improved in January, and six-month expectations for family finances reached a new series high.

As inflation pressures have heated up in recent months, inflation expectations likewise ticked up from 5.1% to 5.3% in January, and expectations for higher interest rates rose, with more than half of consumers (51.4%) expecting increases in the next 12 months. The share expecting rates to fall slipped to 23.9% from 28.5% in December, reflecting the Federal Reserve’s posture that the pace of interest rate cuts will slow in 2025. Buying plans for homes and new cars were flat in January, while purchase plans for other big-ticket appliances were mixed. While confidence in economic conditions weakened this month, concerns about a recession remained near the series low.

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